Back to the Costas: terror fear sees travel industry return to its roots

he string of terror attacks in Europe and further afield since last summer has sent reverberations through the travel industry, but Thomas Cook, arguably Britain’s best known tour operator, has felt the effects more than most.

Its chief executive, Peter Fankhauser, has warned the industry is suffering the worst disruption in his 30-year career.

The company’s shares lost almost a fifth of their value this month when it revealed falling bookings as passengers steered clear of trouble spots.

That warning coincided with the disappearance of an EgyptAir flight on its way from Paris to Cairo, renewing concerns that consumers would be reluctant to travel. The plane was later found to have crashed into the sea, killing all 66 people on board, though the cause has not yet been established.

Thomas Cook’s previous trading update, in March, came on the same day terrorists attacked Brussels airport. It followed the murder of 130 people in Paris in November, the killing of 38 holidaymakers in Tunisia in June and the Octoberbombing of a Russian plane flying from Egypt that killed 224 people.

The first three months of this year have seen a series of attacks in Turkey, which 2.5 million Britons visit each year. Thomas Cook’s second-biggest market is Turkey, but visitor numbers tumbled 28% in April – the biggest fall in 17 years.

To add to the pressure on holiday companies, the UK economy has been slowing, consumer confidence is shaky and wage growth weak, while next month’s referendum on EU membership has helped push down the value of the pound against the euro and the dollar.

Ryanair and easyJet, Europe’s biggest carriers, were forced to cut prices after the Paris attacks and both have said seats will be cheaper than last year over the holiday season. Ryanair boss Michael O’Leary spoke of a price war, characteristically declaring his company would be the inevitable winner because of its size and aggressive pricing.

Yet despite all the doom-laden talk, total UK bookings for package holidays this summer are up 6% from a year ago, according to GfK, which compiles a weekly survey of agents and operators.

Britons’ commitment to their annual break survived the Great Recession and it appears to remain a top priority. Early bookings for winter and next summer are up 22% and 18% respectively.

Acting on Foreign Office advice, tour operators are not flying to Tunisia or the Egyptian resort of Sharm el-Sheikh, which has been reduced to little more than a ghost town, helping send overall bookings to the country down by almost two thirds. The government advises people to be wary when travelling to Turkey, where bookings are down by a third.

There has been a surge away from these perceived danger spots to the familiarity of the western Mediterranean, which Britons first started jetting to in the late 1960s.

Bookings for Spain are up 27% this year, with Portugal up 30% and Italy up 12% over last year. Greece is coming out of the doldrums: business is up 4% following a huge rise last year. Thomas Cook has moved the bookings of 1.2 million customers who had arranged holidays in Tunisia, Turkey and Egypt to these countries and to long-haul destinations such as Mexico, the US and Cuba.

There has been a corresponding effect on prices in Europe. Last month it cost about £170 less per person to book two weeks in Turkey compared with last year, but the equivalent trip to Portugal is £94 more expensive and rising.

David Hope, GfK’s business group director, says: “Prices are going up and up and up.” But he says this is only healthy for tour operators if they can provide enough rooms to meet demand.

“It’s looking quite healthy at the moment but the concern is that if the likes of Spain and Portugal become booked up, will they have stock left that people want to buy?” he says. “What is left will be lower-grade property they can get in Spain or hotels in Turkey – and do people want to go there?”

Thomas Cook’s rival, Tui, which owns Thomson, has fared better because it is bigger in Spain and relies less on Turkey. It has also gone upmarket by operating its own boutique-style hotels – a model Thomas Cook is trying to copy.

Wyn Ellis, an analyst at the City broker Numis, says: “That seems to be a more resilient part of the market, partly because it tends to book earlier. At the commodity end of the market, people will book a lot later because they think they can get bargains.”

The industry turmoil has also hit the budget airlines. Dame Carolyn McCall, easyJet’s chief executive, said she was forced to slash prices following the Paris attacks in November.

Both Ryanair and easyJet have reported demand returning to normal but prices are likely to stay low. Ryanair predicted its fares would be down 7% over the next 10 months.

Robin Byde, an analyst at broker Cantor Fitzgerald, says: “The thing to remember with easyJet and Ryanair is that between them they have more than 20% of European short-haul traffic. They are price-makers as well as price-takers, so you have to take it with a pinch of salt when they talk about pressures driving down prices.”

The biggest influence on air fares is the cost of fuel, which has more than halved in the past two years. Because big airlines buy their fuel up to two years in advance, they have only recently felt the benefit of the falling oil price and have plenty of scope to cut fares.